How Do Carbon Offsets Work?
Carbon Offsets Help Finance Emissions Reduction Projects
Typically, a project developer wants to build a clean technology project such as a wind or hydro project. He/she approaches a bank with their business proposal and is refused a loan on the grounds that their project will not be profitable enough to the bank. The project owner has heard of something called ‘carbon credits’, which help to make up the difference in investment for the project. He/She approach, or are approached by, a carbon project developer who promises to help them through the complex regulatory process of registering carbon credits and verifying their project as well as guaranteeing to purchase the carbon credits that will be created by the project. The project developer goes back to the bank, shows them the agreement, and now receives a loan because the carbon credits will make the project profitable. The project can now go ahead, and energy previously produced by coal fired power plants is replaced by the clean energy from the project.
